Los Angeles-based leading defense contractor,
Northrop Grumman Corporation
(
NOC
), reported impressive fourth quarter 2011 results of $1.85 per
share compared with $1.51 in the third quarter of 2010. Northrop
results also exceeded the Zacks Consensus Estimate of $1.68 for the
quarter. The upside in earnings was attributable to improved
performance, lower interest expenses and a lower share count. This
was partially offset by lower sales and higher taxes.
Fiscal 2011 earnings came in at $6.49 per share, falling short
of the Zacks Consensus Estimate of $7.02 and beating fiscal 2010
earnings of $5.80 per share.
Operational Performance
Sales for the reported quarter decreased 6% to $6.5 billion,
from $6.9 billion in the year-ago quarter, and were 2.9% lower than
the Zacks Consensus Estimate of $6.7 billion. In the reported
quarter, earnings from continuing operations increased to $550
million from $306 million in the fourth quarter of 2010. Net
earnings in the reported quarter increased to $548 million from
$376 million in the prior-year period.
Fiscal 2011 revenue was $26.4 billion versus the Zacks Consensus
Estimate of $26.6 billion. Full year revenue came below the $28.1
billion generated a year ago.
Segment Performance
Aerospace Systems
Aerospace Systems quarterly sales declined 4.1% year over year
to $2.6 billion, principally due to lower volume for space systems
and manned aircraft programs. Aerospace Systems' operating
income increased 1% to $325 million. Operating margin expanded to
12.7% from 12.1% in the year-ago quarter. Higher operating income
and margin rate were driven by improved program performances and
lower amortization of purchased intangibles. This was partially
offset by lower volume.
Electronic Systems
Electronic Systems sales declined marginally 0.3% to $1.9
billion. Operating income decreased 5.9% to $256 million. Also,
operating margin decreased to 13.7% from 14.5% year over year. The
downcast in bottom-line was due to reserves established for
contractual matters and 2011 reductions in force. This was
partially offset by improved program performance.
Information Systems
Information Systems sales of $1.9 billion were 8.4% lower than
the year-ago period, principally due to lower program volume for
defense systems and civil systems. Operating income increased 10.1%
to $196 million. Operating margin increased to 10.3% from 8.5% year
over year. Higher operating income and margin primarily reflect
improved program performance and business mix in civil systems.
This was partially offset by a decline in sales.
Technical Services
Technical Services' sales decreased 15.1% to $675 million due to
portfolio shaping to improve performance. Operating income
increased 14.3% to $56 million. Operating margin increased to 8.3%
from 6.2% year over year. The improvement in the bottom line
reflects improved performance and contract close-outs on spares and
repairs programs in integrated logistics and
modernization.
Financial Condition
Northrop Grumman ended 2011 with cash and cash equivalents of
approximately $3.0 billion compared with $3.7 billion at year-end
2010. Cash generated from operations in 2011 totaled $2.1 billion
versus cash from operations of $2.5 billion in the year-ago period.
Long-term debt remained flat at roughly $3.9 billion at fiscal 2011
end year over year.
Outlook
Northrop Grumman's total order backlog at the end of fiscal 2011
stood at $39.5 billion compared with $46.8 billion at fiscal-end
2010. The lower trend in order backlog is expected to continue in
2012 as some of the prominent programs of the company like the
Global Hawk and the F-35 Joint Strike Fighter are coming under the
scanner of U.S. budget cuts.
The company affirmed its revenue guidance for fiscal 2012 in the
range of $24.7 billion-$25.4 billion. It expects its earnings per
share (
EPS
) to be in the range of $6.40 - $6.60.
Los Angeles-based Northrop Grumman Corporation is one of the
largest defense contractor in the U.S. The company supplies a broad
array of products and services to the U.S. Department of Defense
(DoD), including electronic systems, information technology,
aircraft, space technology and systems integration services.
We maintain our long-term 'Neutral' recommendation on Northrop
Grumman. The quantitative Zacks # 3 Rank (short-term Hold rating)
for the company indicates no clear directional pressure on the
shares over the near term. This is in line with its peers like
General Dynamics Corporation
(
GD
) and
Lockheed Martin Corporation
(
LMT
).
GENL DYNAMICS (
GD
): Free Stock Analysis Report
LOCKHEED MARTIN (
LMT
): Free Stock Analysis Report
NORTHROP GRUMMN (
NOC
): Free Stock Analysis Report
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